GST ON ROAD CONSTRUCTION AND TOLL COLLECTION SERVICES

In CG Tollway Ltd. Versus The Union Of India, Through The Secretary, Ministry Of Finance, New Delhi, State Of Rajasthan, The Special Commissioner, Rajasthan, The Deputy Commissioner, State Tax, Bhilwara, The Joint Commissioner, State Tax, Bhilwara - 2026 (6) TMI 166 - RAJASTHAN HIGH COURT, the Rajasthan High Court dismissed the Writ Petition filed by the petitioner on merit and in favour of the Revenue. The petitioner had challenged the levy and collection of tax on highway construction and toll collection activities on non-monetary consideration arising out of DBFOT concession agreement between NHAI and petitioner for six-laning of road stretch in Rajasthan.

According to factual matrix, NHAI entered into DBFOT concession agreement with petitioner for road construction and the agreement granted exclusive toll rights during concession and site access on leave and license bases. The construction work was sub-contracted while retaining the toll collection work. No monetary consideration flowed form NHAI for construction nor there was any agreement between NHAI and sub-contractor. No privity existed between the two.

The petitioner had given the work contract for the construction of the road to a sub-contractor, i.e., IRB Infrastructure Developers Limited, whereas the collection of toll was to be done by the petitioner, which was being undertaken by the petitioner.

The petitioner contended that there was no supply of service involved to NHAI. The petitioner has not received a single consideration from the NHAI. The petitioner has received only toll charges which is exempt. Further, it was entitled to parity in tax treatment under article 14 of Constitution of India. The demand was also contrary to exemption notification.

On the other hand, Revenue submitted that the petitioner had alternate remedy under section 112 of the CGST Act, 2017. Further, it was argued that 'supply' includes 'barter' and 'consideration' includes 'payment in money or otherwise'. Since the petitioner was granted the right to collect toll, the same amounted to consideration and the transaction was essentially 'barter', inasmuch as the petitioner constructed the road and in barter, received the right to collect toll. Thus, the transaction clearly fells within the definition of taxable supply.

Since the Appellate Tribunal was not yet functional, court deemed it appropriate to adjudicate the writ on merit rather than to leave the petitioner remediless.

The High Court observed and held as follows:

• Consideration covers money or otherwise and could be deferred.
• Toll rights operated as reciprocal consideration amounting to 'barter' and is a taxable supply.
• Valuation rules shall apply for consideration not wholly in money
• Contractor and sub-contractor supply is distinct from NHAI - contractor (petitioner) supply.
• Plea of double taxation fail as there were two separate contracts without any overlap
• The nature of tax is entirely different and is being levied upon the services provided by the contractor in terms of the concession agreement.
• Construction of road falls under heading 9954 and not under 9967.
• Only access to road service by way of toll is under heading 9967 and exempt under entry No. 23 of Notification No. 12/2017-CT (Rate) dated 28.06.2017.
• Toll is received as the reciprocal consideration for construction and such activity does not qualify for exemption.
• The collection of toll is essentially one of the consideration, which is being received by the petitioner and essentially amounts to annuity. Thus, the same does not fall within the ambit of the exemption clause.
• Toll is collected form annuity or deferred consideration for construction and is taxable.
• VAT taxed sale of goods upon incorporation in works contract do not extend to services

The petition stood dismissed in favour of Revenue and against the petitioner, being bereft of merit.